Equity comparison between alberta & british columbia on the basis of personal income tax systems

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Why is this issue important ?

It affects the economic wellbeing of the residents (taxpayers) of both provinces.

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Issues being addressed

Is Progressive tax system fairer than proportional tax system? Which tax system promotes better equity (vertical and horizontal)? Which tax system reduces income inequalities?

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hypothesis

Progressive tax system in BC leads to better equity as compared to the proportionate tax system in Alberta

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Few Facts about the provinces

British Columbia

Alberta

Population - 4,400,057 GDP - C$191.006billion Population - 3,779,400 GDP per capita - C$41,689 GDP - C$178.225 billion Unemployment rate 6.9% GDP per capita - C$49,563 (Feb 2012) Unemployment rate 5.4% Minimum Wage (Sept 2011) May 1, 2011 $8.75/hour; Minimum Wage November 1, 2011 September 2011 9.40/hour $9.50/hour; May 1, 2012 $10.25/hour Main industries Forestry, Main industries Oil and Gas, Petrochemicals, Agriculture, Mining, Fisheries, Agriculture, Food and Beverages, Tourism, Energy and transportation Industry Machinery and Equipment

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Tax systems

Proportional Tax Progressive Tax System

Progressive tax system levies taxes according to the individuals income Rich pay more Poor pay less Stable income stream for the government Promotes horizontal and vertical equity

Proportional tax system is a system in which the proportion of income paid in taxes is the same for all income levels. Rich pay more Poor pay more Revenues vary according to the income Promotes horizontal equity only

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Tax brackets

British Columbia
2012 Tax Rates 5.06%

Alberta
2012 Tax Rates

2012 Taxable Income first $37,013

2012 Taxable Income Total taxable income

over $37,013 up 7.70% to $74,028 over $74,028 up 10.50% to $84,993 over $84,993 up 12.29% to $103,205 over $103,205 14.70%

10%

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Hey, wait a minute..!!

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Fact BC has the highest income inequality in canada

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Methodology for analysis

Comparison of Gini coefficients for Market Income, Total Income and After tax income to identify income inequalities between BC and Alberta
Market Income - Total income before tax minus income from government sources. Total Income - Total income refers to income from all sources including government transfers and before deduction of federal and provincial income taxes. After-tax Income - After-tax income is total income, which includes government transfers, less income tax.
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GINI coefficient

The Gini coefficient is a number between zero and one that measures the relative degree of inequality in the distribution of income. The coefficient would register zero (minimum inequality) and it would register a coefficient of one (maximum inequality). To calculate the Gini coefficient, you divide the orange area (A) by the sum of the orange and blue areas (A + B).

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Income inequality in canada is on rise

Statistics Canada. Table 202-0705 - Gini coefficients of market, total and after-tax income, by economic family type, annual (number)

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Gini coefficients for market income

Statistics Canada. Table 202-0705 - Gini coefficients of market, total and after-tax income, by economic family type, annual (number)

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Gini coefficients for total income

Statistics Canada. Table 202-0705 - Gini coefficients of market, total and after-tax income, by economic family type, annual (number)

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Gini coefficients for after-tax income

Statistics Canada. Table 202-0705 - Gini coefficients of market, total and after-tax income, by economic family type, annual (number) 4/10/12

Reasons explaining inequality

1. Low Wages A particular job in Alberta pays you more as compared to the same job in BC.

Source Living in Canada Website

2. Low Tax Credits as compared to Alberta

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PROVINCIAL COMPARISON - AVERAGE WEEKLY WAGE RATE

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Non-refundable Tax credits

2012 Tax Credits (in dollars) Basic personal amount Spousal amount
British Columbia

Alberta 17,282 17,282 10,004 13,331 10,004 1,331 2,233 202 672 4,816 4/10/12

11,354 9,964

Infirm dependent amount 4,250 (18+) Disability amount Caregiver amount Pension income amount Medical expense 7,285 4,250 1,000 2,020

Education part time per 60 month Education full time per month Age amount 200 4,356

What can help?

What should alberta do?

Increase the minimum wage Public Interest Alberta discussed under the living wage campaign that a living wage would be much more than $12/hour

Start progressive tax system

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What can help?

What should BC do? Increase the tax credits so that more money can stay in poor persons pocket. Increase the marginal tax rates for higher income brackets. Demolish PST.

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Questions?

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